Contract
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made as of August 1,
2002 between PEPCO HOLDINGS, INC. (the "Company") and XXXXXX X. XXXXXX
(the "Executive").
RECITALS:
The Board of Directors of the Company (the "Board of Directors") recognizes that
outstanding management of the Company is essential to advancing the best interests of
the Company, its shareholders and its subsidiaries. The Board of Directors believes that
it is particularly important to have stable, excellent management at the present time. The
Board of Directors believes that this objective may be achieved by giving key
management employees assurances of financial security for a period of time, so that they
will not be distracted by personal risks and will continue to devote their full time and best
efforts to the performance of their duties.
The Human Resources Committee of the Board of Directors (the "Committee") has
recommended, and the Board of Directors has approved, entering into amended and
restated employment agreements with the Company's key management executives in
order to achieve the foregoing objectives. Accordingly, this Agreement amends, restates
and supercedes the employment agreement previously entered into between the Company
and the Executive, dated December 10, 1999 (the "Prior Agreement"). Upon execution
of this Agreement, the Prior Agreement shall be of no further force or effect. The
Executive is a key management executive of the Company and is a valuable member of
the Company's management team. The Company acknowledges that the Executive's
contributions to the past and future growth and success of the Company have been and
will continue to be substantial. The Company and the Executive are entering into this
Agreement to induce the Executive to remain an employee of the Company and to
continue to devote his full energy to the Company's affairs. The Executive has agreed to
continue to be employed by the Company under the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the foregoing and the mutual
undertakings contained in this Agreement, the parties agree as follows:
1. Term of this Agreement. The term of this Agreement shall begin on the date first
set forth above and shall end on the fifth anniversary thereof; provided, however, that, on
such fifth anniversary, the term of this Agreement shall be automatically extended until
the Executive's normal retirement date of April 1, 2009, unless either party gives notice
to the other at least 6 months prior to such anniversary that the term of this Agreement
shall not be extended (the initial 5 year term of this Agreement and, if extended, the
extension thereof, shall hereinafter be referred to as the "Term of this Agreement").
Notwithstanding the forgoing, if the Executive's employment is terminated during the
Term of this Agreement and all of the Company's and the Executive's obligations
hereunder have been satisfied prior to the end of the Term of this Agreement, this
Agreement shall expire upon satisfaction of all such obligations.
2. Duties. The Company and the Executive agree that, while employed during the
Term of this Agreement, the Executive will serve in a senior management position with
the Company. The Executive (a) will devote his knowledge, skill and best efforts on a
full-time basis to performing his duties and obligations to the Company (with the
exception of absences on account of illness or vacation in accordance with the Company's
policies and civic and charitable commitments not involving a conflict with the
Company's business), and (b) will comply with the directions and orders of the Board of
Directors and Chief Executive Officer of the Company with respect to the performance of
his duties.
3. Affiliates. Employment by an Affiliate of the Company or a successor to the
Company will be considered employment by the Company for purposes of this
Agreement, and the Executive's employment with the Company shall be considered
terminated only if the Executive is no longer employed by the Company or any of its
Affiliates or successors. The term "Company" as used in this Agreement will be deemed
to include Affiliates and successors. For purposes of this Agreement, the term "Affiliate"
means the subsidiaries of the Company and other entities under common control with the
Company.
4. Compensation and Benefits.
(a) During the Term of this Agreement, while the Executive is employed by the
Company, the Company will pay to the Executive the following salary and incentive
awards for services rendered to the Company:
(i) The Company will pay to the Executive an annual salary in an amount
not less than the base salary in effect for the Executive as of the date on which this
Agreement is executed (in the event the Executive's rate of annual base salary is
increased, such increased rate shall not be decreased during the Term of this
Agreement); and
(ii) The Executive will be entitled to receive incentive awards if and to the
extent that the Board of Directors determines in good faith that the Executive's
performance merits payment of an award according to the terms of the incentive
compensation plans applicable to senior executives of the Company.
If the Executive is employed by an Affiliate or a successor (as described in Section 3),
the term "Board of Directors" as used in this Section 4(a) and in Section 5(a) means the
Board of Directors of the Executive's employer.
(b) During the Term of this Agreement, while the Executive is employed by the
Company, the Executive will be eligible to participate in a similar manner as other senior
executives of the Company in retirement plans, fringe benefit plans, supplemental benefit
plans and other plans and programs provided by the Company for its executives or
employees from time to time.
5. Termination of Employment.
(a) If, during the Term of this Agreement, the Company terminates the
Executive's employment other than for Cause (as defined in Section 7), the Company will
pay to the Executive in cash within 30 days after the Executive's termination of
employment
(i) a lump sum payment equal to three (3) times the sum of: (A) the
highest annual base salary rate in effect for the Executive at any time during the
three-year period preceding employment termination, plus (B) the highest of (1) the
annual bonus for the year in which the termination of employment occurs, or (2)
the highest annual bonus received by the Executive during the three calendar years
preceding the calendar year in which the termination of employment occurs; and
any unpaid salary through the date of employment termination, unpaid annual
bonus for the prior year and a pro-rated portion of the annual bonus for the year in
which termination of employment occurs.
(ii) For purposes of Sections 5(a)(i)(B)(1), 5(a)(ii), and 5(b)(ii), the annual
bonus for the year in which termination of employment occurs will be the "target"
annual bonus for such year unless, before the Executive's termination of
employment, the Board of Directors made a good faith final determination of the
amount of the Executive's actual annual bonus for such year. If the Board of
Directors made such a determination, the applicable award will be computed based
on the Board of Directors' determination, rather than on the "target" amount for
such year.
(b) If, during the Term of this Agreement, the Company terminates the
Executive's employment other than for Cause (as defined in Section 7), the Executive
will be entitled to receive the following additional benefits determined as of the date of
his termination of employment:
(i) Any outstanding restricted stock that would become vested (that is,
transferable and nonforfeitable) if the Executive remained an employee through the
Term of this Agreement will become vested as of the date of the Executive's
termination of employment (or as of the date described in the next sentence, if
applicable). In addition, if the Company has agreed to award the Executive
restricted stock at the end of a performance period, subject to the Company's
achievement of performance goals, and the date as of which the restricted stock is
to become vested falls within the Term of this Agreement, the stock will be
awarded and become vested at the end of the performance period if and to the
extent that the performance goals are met.
(ii) A supplemental retirement benefit payable in cash in a lump sum
equal to the difference between (A) the present value of the vested retirement
benefits that the Executive had accrued at the time of termination of employment
under the Company's qualified defined benefit retirement plan (the "Retirement
Plan"), any excess or supplemental retirement plans in which the Executive
participates and/or other supplemental retirement benefits to which the Executive is
entitled under any contract or agreement (together, the "SERPs"), assuming for this
purpose that the Executive would begin receiving benefits at the first early
retirement date provided under the applicable plan or, if the Executive is eligible to
receive retirement benefits upon termination of employment under the applicable
plan, assuming the Executive will begin receiving benefits at the time of
termination of employment, and (B) the benefit the Executive would be entitled to
receive under the Retirement Plan and the SERPs, assuming for all such benefit
determinations: (1) that the Executive's Final Average Earnings are equal to the
Executive's annual rate of base salary in effect in accordance with this Agreement
immediately before the employment termination, plus the highest annual bonus
awarded to the Executive for the three years preceding the year in which the
termination occurs or, if higher, the annual bonus for the year in which the
termination occurs, and (2) that the Executive had reached age 62 and had
completed 40 years of service (or, if greater, the age and years of service the
Executive would have reached at the end of the Term of this Agreement in effect at
the time of the employment termination). For purposes of the calculations required
under this Section 5(b)(ii), the same actuarial assumptions that are used under the
Company's qualified retirement plan shall be used.
(iii) The Executive will be provided any other benefits provided to
retirees (i.e., medical and other welfare benefits) on the same terms as any retiree
who has attained age 62 and completed 40 years of service (or, if greater, the
Executive's actual age and the actual number of years of service the Executive had
completed at the time of the employment termination).
(iv) If the split dollar insurance arrangement between the Company and
the Executive is in effect at the time of the Executive's employment termination,
the Company shall continue to pay all premium amounts with respect to the
Executive's policy under the Company's split dollar insurance program for the
lesser of ten (10) years from the date of termination of employment or the period of
time remaining until the Executive's "Roll Out Qualification Date," (as defined in
the split dollar program) whichever first occurs.
(c) If the Executive voluntarily terminates employment with the Company
during the Term of this Agreement under circumstances described in this subsection (c),
the Executive will be entitled to receive the benefits described in subsections (a) and (b)
above as if the Company had terminated the Executive's employment other than for
Cause. Subject to the provisions of this subsection (c), these benefits will be provided if
the Executive voluntarily terminates employment after (i) the Company reduces the
Executive's base salary (except a reduction consistent and proportional with an overall
reduction, due to extraordinary business conditions, in the compensation of all other
senior executives of the Company), (ii) the Executive is not in good faith considered for
incentive awards as described in Section 4(a)(ii), (iii) the Company fails to provide
benefits as required by Section 4(b), (iv) the Company relocates the Executive's place of
employment to a location further than 50 miles from Washington, DC, (v) the Company
demotes the Executive to a position that is not a senior management position (other than
on account of the Executive's disability, as defined in Section 6 below), or (vi) the
Company notifies the Executive pursuant to Section 1 hereof that the Term of this
Agreement shall not be extended beyond its initial five (5) year term. In order for this
subsection (c) to be effective: (1) the Executive must give written notice to the Company
indicating that the Executive intends to terminate employment under this subsection (c),
(2) the Executive' s voluntary termination under this subsection must occur within 60
days after the Executive knows or reasonably should know of an event described in
clause (i), (ii), (iii), (iv), (v), or (vi) above, or within 60 days after the last in a series of
such events, and (3) the Company must have failed to remedy the event described in
clause (i), (ii), (iii), (iv), (v), or (vi), as the case may be, within 30 days after receiving the
Executive's written notice. If the Company remedies the event described in clause (i),
(ii), (iii), (iv), or (v), as the case may be, within 30 days after receiving the Executive's
written notice, the Executive may not terminate employment under this subsection (c) on
account of the event specified in the Executive's notice. Termination under the
circumstances above shall be deemed an involuntary termination without Cause for
purposes of non-qualified benefit plans.
(d) Notwithstanding subsection (a), (b), and (c) of this Section 5, if the
independent public accountants for the Company (the "Accountants") determine that if
the payments and/or benefits to be provided under subsections (a), (b), and (c) of this
Section 5 (and/or any other payments and/or benefits provided or to be provided to the
Executive under any applicable plan, program, agreement or arrangement maintained,
contributed to or entered into by the Company or any group or entity whose actions result
in a change of ownership or effective control (as those terms are defined in Code Section
280G and regulations promulgated thereunder) or any affiliate of the Company) (a
"Payment" or collectively "Payments") were provided to the Executive (x) the Executive
would incur an excise tax under Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") (such excise tax, together with any interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), and (y) the net after tax benefits
to the Executive attributable to the Payments would not be at least $10,000 greater than
the net after tax benefits that would accrue to the Executive if the Payments that would
otherwise cause the Executive to be subject to the Excise Tax were not provided, the
Payments shall be reduced so that the Payments provided to the Executive are the greatest
(as determined by the Accountants) that may be provided without any such Payment
being subject to the Excise Tax. If the Payments are to be reduced under this subsection
5(d), the Executive shall be given the opportunity to designate which Payments shall be
reduced and in what order of priority.
(i) If the Executive receives reduced Payments pursuant to subsection
5(d), or if it had been determined that no such reduction was required, but it
nonetheless is established pursuant to the final determination of a court or an
Internal Revenue Service proceeding that, notwithstanding the good faith of the
Executive and the Company in applying the terms of subsection 5(d), the aggregate
Payments to the Executive would result in any Payment being subject to the Excise
Tax, and that a reduction pursuant to subsection 5(d) should have occurred, then
the Executive shall be deemed for all purposes to have received a loan made on the
date of the receipt of the Payments in an amount such that, after taking into
consideration such loan, no portion of the aggregate Payments would be subject to
the Excise Tax. The Executive shall have an obligation to repay such loan to the
Company on demand, together with interest on such amount at the applicable
Federal rate (as defined in Section 1274(d) of the Code) from the date of the
Executive's receipt of such loan until the date of such repayment.
(ii) If the Executive's Payments are reduced or are to be reduced
pursuant to subsection 5(d), and it is determined that the Payments were or are to
be reduced pursuant to subsection 5(d) to a greater extent than was or is necessary
to avoid the Excise Tax or it is determined that the Executive's Payments should
not be or should not have been reduced pursuant to subsection 5(d), then the
Company shall promptly pay to the Executive the amount necessary so that, after
such adjustment, the Executive will have received or be entitled to receive the
maximum payments payable under this subsection 5(d), together with interest at
the applicable Federal rate (as defined in Section 1274(d) of the Code) on amounts
that were incorrectly reduced pursuant to subsection 5(d).
(ii) Gross-Up Payment.
(A) Anything in this Agreement to the contrary notwithstanding, if
it shall be determined that any Payments would be subject to
the Excise Tax or any interest or penalties are incurred, and it
is determined that the Payments should not be reduced
pursuant to subsection 5(d), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without
limitation, any income taxes, employment taxes (and any
interest and penalties imposed with respect thereto) and
Excise Taxes imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon the Payments.
(B) All determinations required to be made under this subsection
5(d)(iii), including whether and when a Gross-Up Payment is
required and the amount of such Gross-up Payment and the
assumptions to be utilized in arriving at such determination,
shall be made by the Accountants, who shall provide detailed
supporting calculations both to the Company and the
Executive within 15 business days of the receipt of notice
from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. All fees and
expenses of the Accountants shall be borne solely by the
Company. Any Gross-Up Payment, as determined pursuant
to this subsection 5(d)(iii), shall be paid by the Company to
the Executive within five days of the receipt of the
Accountants' determination. Any determination made
independently and in good faith by the Accountants shall be
binding upon the Company and the Executive. As a result of
the uncertainty in the application of Sections 280G and 4999
of the Code, at the time of the initial determination by the
Accountants hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company
should have been made ("Underpayment") consistent with
the calculations required to be made hereunder. In the event
that the Company exhausts its remedies pursuant to
subsection 5(d)(iii)(C) and the Executive thereafter is
required to make a payment of any Excise Tax, the
Accountants shall determine the amount of the
Underpayment that has occurred and any such Underpayment
shall be promptly paid by the Company to or for the benefit
of the Executive.
(C) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful,
would require the payment by the Company of the Gross-Up
Payment. Such notification shall be given as soon as
practicable but no later than thirty business days after the
Executive is informed in writing of such claim and shall
apprise the Company of the nature of such claim and the date
on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the 30-day
period following the date on which it gives such notice to the
Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the
Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim,
the Executive shall:
(1) give the Company any information reasonably
requested by the Company relating to such claim,
(2) take such action in connection with contesting such
claim as the Company shall reasonably request in
writing from time to time, including, without
limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by
the Company,
(3) cooperate with the Company in good faith in order
effectively to contest such claim, and
(4) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest
and penalties) incurred in connection with such contest and
shall indemnify and hold the Executive harmless, on an after-
tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a
result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of
this subsection 5(d)(iii), the Company shall control all
proceedings taken in connection with such contest and, at its
sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole
option, either direct the Executive to pay the tax claimed and
xxx for a refund or contest the claim in any permissible
manner, and the Executive agrees to prosecute such contest
to a determination before any administrative tribunal, in a
court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, further,
that if the Company directs the Executive to pay such claim
and xxx for a refund, the Company shall advance the amount
of such payment to the Executive, on an interest-free basis
and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including
interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed
income with respect to such advance; and provided, further,
that any extension of the statute of limitations relating to
payment of taxes for the taxable year of the Executive with
respect to which such contested amount is claimed to be due
is limited solely to such contested amount. Furthermore, the
Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable
hereunder and the Executive shall be entitled to settle or
contest, as the case may be any other issue raised by the
Internal Revenue Service or any other taxing authority.
(D) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to subsection 5(d)(iii)(C), the
Executive becomes entitled to receive any refund with
respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of subsection
5(d)(iii)) promptly pay to the Company the amount of such
refund (together with any interest paid or credited thereon
after taxes applicable thereto). If after the receipt by the
Executive of an amount advanced by the Company pursuant
to subsection 5(d)(iii), a determination is made that the
Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to
the expiration of 30 days after such determination, then such
advance shall be forgiven and shall not be required to be
repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to
be paid.
6. Disability or Death. Upon the Executive's death or disability, the provisions of
Sections 1, 2, 4, and 5 of this Agreement will terminate. This contract provides no
benefits due to disability or death in addition to any death, disability and other benefit
provided under the Company benefit plans in which the executive participates. The
Executive shall be considered disabled if the Executive is entitled to long-term disability
benefits under the Company's disability plan or policy.
7. Cause. For purposes of this Agreement, the term "Cause" means (i) intentional
fraud or material misappropriation with respect to the business or assets of the Company,
(ii) persistent refusal or willful failure of the Executive to perform substantially his duties
and responsibilities to the Company, other than an asserted responsibility which would
give rise under Section 5(c) above to a right to terminate and have such termination
considered an involuntary termination without Cause, which continues after the
Executive receives notice of such refusal or failure, (iii) conduct that constitutes
disloyalty to the Company, and that materially damages the property, business or
reputation of the Company, or (iv) conviction of a felony involving moral turpitude.
8. Termination. This Agreement shall terminate upon the successful completion of
the Term of this Agreement; provided, however, that if the Executive's employment is
terminated during the Term of this Agreement and the Company's and the Executive's
obligations under Sections 5, 9 or 10 hereof have not been satisfied as of the last day of
the Term of this Agreement, such obligations shall survive the expiration of the Term of
this Agreement and shall remain in effect until such time as all such obligations have
been satisfied. No additional payments are required by the termination of this
Agreement. The Executive, if he has remained an employee during the Term of this
Agreement and has attained a minimum of age 55, shall be considered vested in the
benefits provided under the Company's Supplemental Executive Retirement Plan,
Executive Performance Supplemental Retirement Plan and Supplemental Benefit Plan.
9. Fees and Expenses. The Company will pay all reasonable fees and expenses, if
any, (including, without limitation, legal fees and expenses) that are incurred by the
Executive to enforce this Agreement and that result from a breach of this Agreement by
the Company, unless such fees and expenses result from a claim made by the Executive
that is deemed by an arbitrator, mediator, or court, as applicable, to be frivolous or made
in bad faith, in which case each party shall pay its own fees and expenses.
10. Tax Withholding. The Company may withhold from all amounts payable under
this Agreement an amount necessary to satisfy its income and payroll tax withholding
obligations.
11. Assignment. The rights and obligations of the Company under this Agreement
will inure to the benefit of and will be binding upon the successors and assigns of the
Company. If the Company is consolidated or merged with or into another corporation, or
if another entity purchases all or substantially all of the Company's assets, the surviving
or acquiring corporation will succeed to the Company's rights and obligations under this
Agreement. The Executive's rights under this Agreement may not be assigned or
transferred in whole or in part, except that the personal representative of the Executive's
estate will receive any amounts payable under this Agreement after the death of the
Executive.
12. Rights Under this Agreement. The right to receive benefits under the Agreement
will not give the Executive any proprietary interest in the Company or any of its assets.
Benefits under the Agreement will be payable from the general assets of the Company,
and there will be no required funding of amounts that may become payable under the
Agreement. The Executive will for all purposes be a general creditor of the Company.
The interest of the Executive under the Agreement cannot be assigned, anticipated, sold,
encumbered or pledged and will not be subject to the claims of the Executive's creditors.
13. Notice. For purposes of this Agreement, notices and all other communications to
the Executive must be in writing addressed to the Executive or his personal representative
at his last known address. All notices to the Company must be directed to the attention of
the Chief Executive Officer. Such other addresses may be used as either party may have
furnished to the other in writing. Notices are effective when mailed if sent by United
States registered mail, return receipt requested, postage prepaid. Notices sent otherwise
are effective when received. Notwithstanding the forgoing, notices of change of address
are effective only upon receipt.
14. Miscellaneous. To the extent not governed by federal law, this Agreement will
be construed in accordance with the law of the State of Maryland without reference to its
conflict of laws rules. No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing and the
writing is signed by the Executive and the Company. A waiver of any breach of or
compliance with any provision or condition of this Agreement is not a waiver of similar
or dissimilar provisions or conditions. The invalidity or unenforceability of any
provision of this Agreement will not affect the validity or enforceability of any other
provision of this Agreement, which will remain in full force and effect. This Agreement
may be executed in one or more counterparts, all of which will be considered one and the
same agreement. As of the date first above written, the Prior Agreement shall be
amended, restated and superceded in its entirety and shall no longer be of any force or
effect.
WITNESS the following signatures.
PEPCO HOLDINGS, INC. EXECUTIVE
By: XXXX X. XXXXXXX, XX. X. X. XXXXXX
Chairman of the Board and Chief Xxxxxx X. Xxxxxx
Executive Officer
